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Inventory Accuracy Impacting Food Quality   Date: Monday 30 October, 2006
By Thomas R. Cutler  

Article Content:

Superior Quality Foods has been a leading quality supplier of meat, poultry, seafood, and vegetable bases, as well as savory flavors, sauces and gravy bases and seasonings, for well over twenty years.  Located in Ontario, California, the company serves retail, food service, and industrial markets.  Its Better than Bouillon and Crockery Gourmet brands are found in many supermarkets.  The company also supplies restaurants and its bases used as ingredients by many industrial food processors.

To ensure there were enough raw materials for production, Superior Quality Foods operated “Just in Case”, rather than Just-in-Time.  Although the company was growing, poor inventory control was impacting profitability.  Albert Barriga, vice-president of operations, explained the problem:  “We just didn’t have any confidence in our inventory control systems.  We would always double check regardless of what the system said.”

Barriga commented, “Due to the lack of confidence in the system, we would order extra raw materials to ensure we had enough to meet production needs.  We have over 250 different raw materials and were building up inventory unnecessarily. The money to pay for that excess inventory was coming right off the bottom-line.”

To keep on top of the problem, the company scheduled frequent cycle counts, resulting in plant disruptions.  “We were always second guessing our decision.  We spent a lot of time and invested a tremendous amount of labor trying to keep the inventory accurate.  We would do four physical inventories a year, because after three or four months we could trust the numbers.  This involved shutting down the plant and counting everything,” Barriga noted.

The inventory accuracy problems were also causing concern for the company’s bankers.  Barriga explained, “We have to get a line of credit from the bank to handle our slower months, due to the seasonality of our products.  The bank was starting to have issues because they lent us money based on the value of our inventory.  Since we could not show accurate inventory numbers, the bank was putting pressure on us to improve our systems.”

As a company grows beyond a certain level of sales, it becomes very difficult to manage without formalized processes and systems.  Superior Quality Foods was growing at a compound rate of 10% per annum.  “We were moving out of the entrepreneurial mode and into a more structured environment,” said Barriga.  “We were no longer a ‘mom and pop’ outfit, but approaching $20 in revenue.  We had to start acting like a bigger company.”

Barriga decided to start over with a new ERP (enterprise resource planning) system.  The management team had changed and the people that understood the previous system had left the company, and the new team was having difficulty with the old system.  He wanted a new ERP system that everyone could learn simultaneously and in which all members of the team would have confidence. 

Selecting a new ERP system:

One of the common mistakes that small companies make is selecting an ERP system that is not focus on their industry.  According to Barriga, “All the systems Superior Quality Food evaluated were similar in respect that they followed Generally Accepted Accounting Principles (GAAP).  Batchmaster (the ERP system selected) was more focused on the food industry.  This helps us, for example, whenever we make a batch, because there will always be a partial batch of material left over at the end of the process.  We wanted a system that would record those partial batches, so when we made the same product again, the first ingredient it would call for would be the partial batch (and plan the raw material for the rest).”

Superior Quality Foods signed an agreement with BatchMaster in February 2005, and five months later completed the implementation the inventory control module.  Barriga urged, “The Quality Assurance team members love it right away.”

Using BatchMaster’s Mobile Wireless Inventory System, all inventory transactions are scanned with wireless data collection devices, eliminated manual input errors.  “We now bar code our entire inventory.  We record all inventory movements in and out with bar bode scanners, updating BatchMaster and providing us with perpetual inventory immediately.  We will always undertake a year end inventory count, but the variances are now very small.  Our inventory accuracy is now around 98%,”reported Barriga.

As a result of the new ERP system, the Superior Quality Food team now has confidence in their financial numbers, so they are able to estimate their capital needs, and projected profitability for the year.  Having accurate inventory has helped the company make better decisions, both strategically and tactically.  The company is able to reduce costs as inventory is reduced.  The bankers are now very happy with the company’s inventory accuracy.

Food Quality and Compliance:

Superior Quality Foods’ facility is USDA approved which places an extra burden on the company.  According to Barriga, “Because we process meat, beef, turkey, ham, and chicken, we must have a USDA inspector on site and we have to follow very stringent rules.  These rules apply not only to the manufacturing process, but also to accounting procedures.  The USDA inspector has the ability to shut down the facility if something is wrong.  We must have good processes and procedures in place, so that our employees don’t make mistakes.  BatchMaster supports our certification by ensuring we maintain accurate records, and provides full product traceability in support of the Bioterrorism Act.”



Author Biography:
Thomas R. Cutler is the President & CEO of Fort Lauderdale, Florida-based TR Cutler, Inc., the largest manufacturing marketing firm worldwide –www.trcutlerinc.com

Cutler is the founder of the Manufacturing Media Consortium of twenty seven hundred journalists and editors writing about trends in manufacturing. Cutler is also the author of the Manufacturers’ Public Relations and Media Guide. Cutler is a frequently published author within the manufacturing sector with more than 300 feature articles authored annually; he can be contacted at trcutler@trcutlerinc.com


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